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Speaker 1: Bloomberg Audio Studios, Podcasts, radio News.

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Speaker 2: Hello and welcome to another episode of the All Thoughts Podcast.

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Speaker 2: I'm Tracy Alloway.

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Speaker 3: And I'm Joe.

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Speaker 2: Why isn't thal Joe? How about that hawkish cut?

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Speaker 3: Eh? Exciting interesting times in macro economics, the Fed, the

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Speaker 3: marks plenty to talk about right now. We're recording this

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Speaker 3: December twentieth.

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Speaker 2: Yeah, we're recording this December twentieth. So two days after

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Speaker 2: we had what is being called a hawkish cut from

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Speaker 2: the FOMC, the Central Bank decided to cut by twenty

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Speaker 2: five basis points. But at the same time they unveiled,

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Speaker 2: you know, their new forecasts for next year, and it

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Speaker 2: looks like the expectations that inflation maybe is going to

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Speaker 2: be a little bit more stubborn and maybe we're only

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Speaker 2: going to get two cuts next year. And markets promptly

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Speaker 2: fell out of bed. They did not like that revised forecast,

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Speaker 2: to say the least.

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Speaker 3: Yeah, it's a little surprising, and we'll get into it,

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Speaker 3: you know. I think to some extent a lot of

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Speaker 3: it was expected, but there are real tensions right now.

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Speaker 3: Right so, we have had stubborn, sideways inflation prints in

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Speaker 3: recent months, maybe not quite the soft trajectory back down

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Speaker 3: to target, the fact that we might not be down

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Speaker 3: to target completely in twenty twenty five, some questions about

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Speaker 3: labor market stability, plenty to dive into, plenty of crosswinds

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Speaker 3: for investors, traders, and so forth.

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Speaker 2: To digest crosswinds is a nice way of putting it.

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Speaker 2: I feel like anyone who was hoping for a quiet

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Speaker 2: end to the year might be disappointed with everything going on.

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Speaker 2: But Joe, I have to say, we really do have

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Speaker 2: the perfect guests to dive into all of this. We're

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Speaker 2: going to be speaking with Federal Reserve Bank of San

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Speaker 2: Francisco President Mary Daily, herself a voting member on the FOMC.

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Speaker 2: So all right, thank you so much for coming on all.

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Speaker 4: Thoughts, I'm delighted my lucky day.

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Speaker 2: So why didn't I start with the obvious question? And

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Speaker 2: one I think I suspect you've been asked this multiple

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Speaker 2: times over the past couple days, But why cut at

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Speaker 2: all if you think that inflation is expected to show

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Speaker 2: not that much progress into next year and maybe not

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Speaker 2: reach two percent until twenty twenty seven.

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Speaker 4: It's a great question, And if I can take a minute,

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Speaker 4: I'll explain exactly how I thought of it, so we

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Speaker 4: had policy rightly, so at a highly restrictive level. Remember,

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Speaker 4: the interest rate was really high, historically high, and that

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Speaker 4: was to fight very high inflation, and a very robust

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Speaker 4: labor market was helping spur high inflation. The economy was

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Speaker 4: out of balance. So now that we have inflation that

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Speaker 4: is much lower, we've made tremendous progress towards getting it

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Speaker 4: back to two. We're not there yet, and the labor

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Speaker 4: market is balanced now, completely balanced, appropriate to move into

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Speaker 4: a more moderate level of restrictiveness. Otherwise what you end

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Speaker 4: up doing is breaking the economy. If you leave the

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Speaker 4: higher level of restrictiveness on while you're closer to your goals,

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Speaker 4: the economy just starts to falter and you end up

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Speaker 4: getting inflation down, but at the expense of people's jobs.

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Speaker 4: And that's not a recipe for a soft landing. That's

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Speaker 4: a recipe for a very hard landing, and it takes

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Speaker 4: away what people have really wanted their entire time that

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Speaker 4: we've been in this high inflation period, which is low

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Speaker 4: and stable inflation and jobs that help them grow their

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Speaker 4: careers and communities and families. So that's why we cut

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Speaker 4: the rate. In my judgment, that's why I supported it.

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Speaker 4: It was a close call. Whether it's seventy five or

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Speaker 4: one hundred basis points in total, that's the right level

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Speaker 4: to get from highly to moderate for me. We now

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Speaker 4: have completed that recalibration right sizing, and now we can

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Speaker 4: look at the data and the incoming information and our

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Speaker 4: projection of how the economy will evolve, and take our

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Speaker 4: time to make any additional policy adjustments.

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Speaker 3: So labor market is, as you put it, in balance

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Speaker 3: and no longer a driver of inflation, and yet inflation

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Speaker 3: has been sideways above target. In fact, the inflation forecast

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Speaker 3: per the dots for twenty twenty five ticked up. What

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Speaker 3: is the residual source of the inflation if it's no

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Speaker 3: longer the labor market.

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Speaker 4: Now, that's another great question and one that we think

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Speaker 4: a lot about. I think a lot about it, and

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Speaker 4: really it traces to two things right now. One is

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Speaker 4: driving it up, maybe temporarily, it's hard to say, and

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Speaker 4: the other one is a more persistent issue. So let

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Speaker 4: me start the first one. It's non market prices. And

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Speaker 4: what that means for people who are really into this

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Speaker 4: like me, is that it's prices we don't actually measure

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Speaker 4: we estimate, and we're not doing this the BA and

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Speaker 4: BLS are doing all the data collection. But it's really

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Speaker 4: these prices that we don't know, We can't see them exactly,

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Speaker 4: and so we estimate them. And so financial services prices,

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Speaker 4: for instance, are based on asset value this, and those

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Speaker 4: have been up. So it feels like inflation's in those

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Speaker 4: areas partly because of the estimates. But it's hard to

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Speaker 4: get your mind on that as a fundamental underlying inflation.

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Speaker 4: It's not really what people think about when they think of,

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Speaker 4: you know, high inflation is hurting me. They're thinking about

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Speaker 4: other things. So that's one factor. The second factor that's

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Speaker 4: really been elevating inflation is housing services, the price of

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Speaker 4: housing and the price of rentals. Now what's interesting there

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Speaker 4: is rental prices have been coming down, but home prices

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Speaker 4: haven't been falling as much, and we're not seeing that

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Speaker 4: gap close. And unfortunately we have a structural issue there

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Speaker 4: that has nothing to do with FED policy. It's really

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Speaker 4: about the substantial, significant, very very large shortfall in housing

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Speaker 4: relatives to the number of people who wanted and so

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Speaker 4: that's something that you know, maybe stickier for a longer

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Speaker 4: period of time than we thought and will cause inflation

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Speaker 4: to be elevated.

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Speaker 2: I mean housing inflation. Is that something that the FED

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Speaker 2: would attempt to offset? And I guess, like with what

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Speaker 2: tools at your disposal? Because you have benchmark interest rates,

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Speaker 2: and you know when rates go up as they have

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Speaker 2: been up until relatively recently, the cost of capital increases

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Speaker 2: for all these home builders and if anything, you know,

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Speaker 2: we see housing activity tend to slow. Like, what is

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Speaker 2: it that you can actually do about housing inflation?

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Speaker 4: So what we do, and this is we do have

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Speaker 4: a limited set of tools for the kind of housing

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Speaker 4: inflation we're seeing. The driver of that being the imbalance

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Speaker 4: between supply of housing and demand for housing. We really

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Speaker 4: don't have a surgical tool for that problem. But what

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Speaker 4: we do have is the interest rate. And one of

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Speaker 4: the things you saw is that building really was stymied

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Speaker 4: when we had interest rates at those very high levels.

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Speaker 4: But as we started to move the interest rate down,

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Speaker 4: then we saw builders start to come off the sideline.

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Speaker 4: So I'll tell you an anecdote. Are some stories from

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Speaker 4: my context. So I have the nine states in the

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Speaker 4: Western US. That's the twelfth district of the Federal Reserve,

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Speaker 4: and that's the coastal states Alaska and Hawaii, and all

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Speaker 4: the inner mountains state so Utah, Nevada, Arizona, and Idaho.

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Speaker 4: Those states we saw immediately when we first took the

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Speaker 4: first fifty basis point reduction in the interest rate is

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Speaker 4: our contacts. I was out in those areas. Our contact

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Speaker 4: said we're going to take some projects off the sidelines,

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Speaker 4: and I said, really, that's just a fifty basis point

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Speaker 4: reduction in the interest rate, and they said, yes, but

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Speaker 4: the direction of change is down, and so now we're

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Speaker 4: ready to come out. And that has been happening since

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Speaker 4: we've been on this relaxation of policy, and the consequence

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Speaker 4: of that is that we're seeing some improvement, but that's

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Speaker 4: not going to be sufficient. And another thing you learn,

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Speaker 4: especially if you travel into Idaho Utah where they've had

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Speaker 4: significant housing challenges, is the public sector and the private

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Speaker 4: sector businesses are joining together to try to get some

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Speaker 4: relief on the housing side. It's a problem for everyone,

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Speaker 4: and the FED only has that limited tool.

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Speaker 2: Joe, I'll give you a cookie if you can name

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Speaker 2: the three American territories that are in addition to the

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Speaker 2: nine states in the San Francisco Fed Catchment.

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Speaker 4: Area Guam is one very good.

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Speaker 2: You'll never get the third one one or the other

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Speaker 2: two American Samoa and the Northern Mariana Islands.

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Speaker 3: I just want to say Mary. Earlier this year, Tracy

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Speaker 3: and I, I don't know if you know, we took

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Speaker 3: a trip with one of your colleagues, Richmond Fed President

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Speaker 3: Tom Barkin.

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Speaker 4: So he's my buddy.

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Speaker 3: If you ever wanted to record an odd lots with

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Speaker 3: us on the road in Hawaii, I'm just throwing it

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Speaker 3: out there. I'm just throw it out.

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Speaker 4: There anywhere I can come to any of the states.

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Speaker 4: I'm going to Alaska, I go to Hawaii, Idaho. Yeah,

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Speaker 4: anytime I have a road I do road trips all

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Speaker 4: the time, and you're welcome to do it.

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Speaker 3: Okay. I'm making a note of that for our producers. Now,

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Speaker 3: I want to go back to the inflation outlook specifically,

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Speaker 3: and I take your point about some of these non

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Speaker 3: market prices, and I certainly take your point about housing

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Speaker 3: because very lots of crosswinds there, the degree to which

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Speaker 3: the rate can affect things, some of the gaps between

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Speaker 3: in some of the market private measures that come out

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Speaker 3: on rents versus the public measures, and so forth. All

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Speaker 3: that being said, there has been some sort of shift

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Speaker 3: in the outlook since September. So these are long standing

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Speaker 3: structural issues, and yet since September, obviously the inflation outlook

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Speaker 3: has firmed per the dots. What has evolved since September

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Speaker 3: such that the inflation outlook for twenty twenty five has

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Speaker 3: gone up.

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Speaker 4: Well, one thing that has evolved for me is just

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Speaker 4: my better understanding as the data have come in and

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Speaker 4: we've dug into them a little bit more, that housing

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Speaker 4: inflation might just be more persistent. So if you think

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Speaker 4: about how it usually works, you would see even with

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Speaker 4: these gaps, you would see housing services inflation come down,

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Speaker 4: and it has not come down as quickly as we

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Speaker 4: would have thought, and so reevaluating how we think about

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Speaker 4: it and just allowing more time and persistence there. Another

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Speaker 4: thing that's happened is we have geopolitical issues and trade

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Speaker 4: back and forth. It doesn't depend on what administration you've

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Speaker 4: been in the one we're in now, we're the one

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Speaker 4: that's upcoming. It really is that trade relations between the

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Speaker 4: US and China haven't been as strong as they have

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Speaker 4: been in past years, and that's spread out to other countries,

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Speaker 4: and so that affects your outlook for just the price

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Speaker 4: of goods. And then of course you know the economy

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Speaker 4: has been consumer spending has just been stronger, and growth

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Speaker 4: has been stronger than most forecasters, including US, have penciled in,

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Speaker 4: and so there's an adjustment to the growth forecast as well.

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Speaker 4: So the way it typically works in the economics models

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Speaker 4: is that growth falls below potential growth, that puts downward

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Speaker 4: pressure on inflation. But when growth is above potential growth,

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Speaker 4: then we're going to see whether that's boosting inflation. I

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Speaker 4: did allow it to boost inflation in my own forecast

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Speaker 4: a little bit, but if it's coming out of productivity

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Speaker 4: gains and labor force growth, then it may not. So

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Speaker 4: that's why you have to be agile as a central banker.

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Speaker 4: You put a forecast in it, but you don't get

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Speaker 4: too attached to it.

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Speaker 2: Definitely want to ask you more questions about the outlook

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Speaker 2: for things like trade and some of the forward looking things.

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Speaker 2: But before we do, just in terms of this week,

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Speaker 2: were you surprised at all by the market reaction to

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Speaker 2: the decision, because I mean there is an irony here,

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Speaker 2: which is you cut twenty five basis points, and it

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Speaker 2: was sort of the first time we've seen like a

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Speaker 2: real tightening of financial conditions since like the summer.

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Speaker 4: Basically, well, they're really forward looking. They're never going to

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Speaker 4: adjust just I mean, this is one of the things

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Speaker 4: about markets, they're extremely forward looking. So they were seems

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Speaker 4: like they were really looking forward on what we said

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Speaker 4: for next year. Now you asked if I was surprised.

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Speaker 4: I was a little surprised.

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Speaker 5: Not.

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Speaker 4: I mean they had expected the great cut that we made,

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Speaker 4: so that wasn't seemed to be the surprising piece. And

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Speaker 4: they had penciled in in their market prices three interest

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Speaker 4: rate cuts next year, not the four we had thought

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Speaker 4: we would make in the September sep And so then

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Speaker 4: when we had they saw the median come out it two,

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Speaker 4: it seemed to be a very large response. And yes

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Speaker 4: that it was surprising because three doesn't seem that far

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Speaker 4: from two. And it's certainly in this in the range

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Speaker 4: of the dispersion of forecasts. I mean, we had some

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Speaker 4: with no cuts, we had some with one person with

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Speaker 4: five cuts in the participant list, if I remember correctly,

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Speaker 4: And so you know, I think the uncertainty bands about

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Speaker 4: what will actually need to do going forward are very

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Speaker 4: wide and I was surprised the markets didn't see that

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Speaker 4: and say, okay, we were roughly in line with what

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Speaker 4: the FED thought, but they didn't, and so that's unclear why.

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Speaker 4: Maybe there's a lot of other things going on in

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Speaker 4: the economy in the world that caused them to take

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Speaker 4: this more risk off approach.

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Speaker 3: But talking about okay, a one point a year ago

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Speaker 3: or so, you know, the FED was in highly restrictive

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Speaker 3: territory and now it's coming down to something that's a

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Speaker 3: little bit more moderate. But either way, and of course

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Speaker 3: we don't really know and you know those two dots,

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Speaker 3: it's just could change again at the next update, But

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Speaker 3: either way, at least right now, it looks like rates

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Speaker 3: whenever this sort of cutting cycle comes to an end,

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Speaker 3: are not going to look like pre COVID levels. And

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Speaker 3: so people talk about the neutral rate of interest having

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Speaker 3: gone up. What's changed since pre COVID such that, regardless

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Speaker 3: of where that sends, we do appear to be in

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Speaker 3: a sort of new higher rate band than we were

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Speaker 3: if we've been having this conversation in say twenty nineteen

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Speaker 3: or twenty eighteen.

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Speaker 4: Yeah, no, a lot's changed since then. And so let's

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Speaker 4: we can walk through some of the factors that I

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Speaker 4: think are really material that the FED and other central

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Speaker 4: banks around the globe are going to have to deal with.

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Speaker 4: So one thing that's changed is the neutral rate of

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Speaker 4: interest is just the price that clears the desire for

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Speaker 4: investment and the desire for savings. Right, So you have

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Speaker 4: the savings and you have the investment, and you balance

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Speaker 4: those two out and you get an interest rate. That's

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Speaker 4: the neutral rate of interest, and it is the one

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Speaker 4: that persists when there's no shocks to the economy. The

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Speaker 4: thing that we were facing coming out of the financial

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Speaker 4: crisis and for the decade that preceded the pandemic, is

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Speaker 4: that we had an abundance of savings and a dearth

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Speaker 4: of investment, and that drove the neutral rate of interest down.

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Speaker 4: Supply of savings was plentiful, interest in demand for investment

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Speaker 4: was not as plentiful, and the neutral rate of interest fell,

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Speaker 4: and it fell across the globe. It's a global rate.

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Speaker 4: So now we have that unwinding. We have a lesser

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Speaker 4: supply of savings. The sovereigns, the countries are all out

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Speaker 4: there borrowing quite a lot of money, and that pushes

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Speaker 4: the demand for an investment or spending up their companies

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Speaker 4: are coming off the sidelines on investment looking to take

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Speaker 4: advantage of automation or AI. That very I't been a

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Speaker 4: labor economist my whole care. And one of the things

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Speaker 4: you see again and again and again is when we

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Speaker 4: have tight labor markets like we had, it drives firms

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Speaker 4: into investments to automate so that they don't feel so

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Speaker 4: frantic when they can't find workers. So we've seen that

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Speaker 4: normal process, and I think that's been spurred even more

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Speaker 4: by people recognizing the AI as a thing. Now there's

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Speaker 4: sometimes and mostly not even using generative AI. I mean,

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Speaker 4: some companies are absolutely reaching into generative AI. But when

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Speaker 4: chat GPT was announced right before Things Giving of twenty

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Speaker 4: twenty two, is that right, that's right, Yeah, twenty twenty two,

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Speaker 4: suddenly people said, oh, I can do robotic process automation,

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Speaker 4: I can do machine learning, I can do all these things.

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Speaker 4: And it's my companies that sell me things to make

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Speaker 4: my life better are going to give me those things.

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Speaker 4: So I think that's really spurred some investment. Companies want

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Speaker 4: to manage their potential workforce shortages going forward. They want

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Speaker 4: to get better at doing their jobs faster, better, cheaper

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Speaker 4: and they're investing in these things. So the ultimately what

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Speaker 4: drives our star is you know, this balance between investment

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Speaker 4: and savings, and that's changed. Another thing that's changed, which

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Speaker 4: is really material to how we do our work at

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Speaker 4: the central bank, is we spend a decade or more

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Speaker 4: fighting inflation from below our target. Our targets two. We're

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Speaker 4: stuck at one point five, one point six, one point eight,

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Speaker 4: never got over one point eight. That's below the target.

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Speaker 4: We're trying to push it up. Now we're back to

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Speaker 4: the normal thing that central banks have done for most

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Speaker 4: of their histories, which is fight inflation from above the target,

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Speaker 4: pulling it down, and that means that interest rates are

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Speaker 4: just going to be higher in order to keep that

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Speaker 4: inflation at pay.

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Speaker 2: Speaking of our star, how much confidence do you have

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Speaker 2: in your estimates of the neutral rate right now? Because

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Speaker 2: I do get the sense, you know, all the talk

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Speaker 2: of data dependency, there is an interpretation out there that's

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Speaker 2: basically while the FED is looking at the data and

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Speaker 2: emphasizing data dependence because they have less confidence in a

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Speaker 2: lot of their models at the moment, a lot of

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Speaker 2: the traditional relationships that we've seen mean, you know, things

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Speaker 2: like the beverage curve have broken down in the post

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Speaker 2: pandemic period, and there is a lot of uncertainty over

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Speaker 2: how things are working at the moment.

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Speaker 4: I'm going to take the opposite view. I actually think

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Speaker 4: the models have done remarkably well, so the beverage curve

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Speaker 4: is like a grand success. For example, if you take

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Speaker 4: this VU ratio and you look at that, we were

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Speaker 4: on the very steep portion of the beverage curve, and

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Speaker 4: you know, research at the San Francisco FED has demonstrated

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Speaker 4: this along with many others across the system. But you know,

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Speaker 4: I was really pleased when I saw we're coming down

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Speaker 4: the straight portion of the beverage curve, which means firms

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Speaker 4: just reduce vacancies and has almost no impact on unemployment.

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Speaker 4: And that's the happy world we've been living in. While

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Speaker 4: we were raising interest rates to fight inflation, vacancies came down,

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Speaker 4: unemployment didn't go up very much, and we got a

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Speaker 4: lot of balance in the labor market. Now, this vacancy

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Speaker 4: to unemployment ratio is one, so one vacancy for every

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Speaker 4: one unemployed worker, and that's a lot of really pain

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Speaker 4: free adjustment. Now I'm talking pain free at the aggregate

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Speaker 4: certainly we want to make sure that we don't say

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Speaker 4: that it was pain free for those who had to

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Speaker 4: resort themselves and change jobs or maybe even lose their jobs.

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Speaker 4: But from an aggregate economy perspective, that was great. So

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Speaker 4: that's a model doing well. Another place where the model

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Speaker 4: is doing well is it's telling us the Phillips curves

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Speaker 4: a little flatter than and it had been for a

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Speaker 4: long time where you don't get you know, once the

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Speaker 4: unemployment rate comes up to a certain level, it just

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Speaker 4: doesn't put additional pressure on inflation. And so at this

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Speaker 4: point we don't think the labor market is really a

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Speaker 4: source of inflationary pressure, and that would come out of

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Speaker 4: the models. Our data dependence is really related to this.

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Speaker 4: In my judgment, this is how I think of it.

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Speaker 4: The incoming information we have always used, we were data dependent.

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Speaker 4: After the financial crisis, we were using we went to

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Speaker 4: a dashboard of indicators. What we've really done in my

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Speaker 4: history here at the FED is expand what we look at.

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Speaker 4: We're not satisfied just looking these headline numbers, so we

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Speaker 4: look at all the real side indicators, all the price indicators.

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Speaker 4: It sort of reminds everybody data is a plural word.

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Speaker 4: It doesn't mean three series. It also doesn't mean simply

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Speaker 4: the quantitative data that you see the big institutions publish.

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Speaker 4: It means talking to our contacts. You said you had

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Speaker 4: Tom Barkin on, Well, Tom and I is here a

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Speaker 4: particular attribute that we gather a lot of information and

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Speaker 4: many other presidents too, But we gather a lot of

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Speaker 4: information from talking to CEOs. Those are the people who

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Speaker 4: are going to tell us I am going to hire

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Speaker 4: next year, I'm not going to hire. I'm getting ready

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Speaker 4: to layoff, I'm dusting off my strategic plans and I'm investing.

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Speaker 4: Those are also data. So I think that our focus

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Speaker 4: on data dependence is our focus on collecting that information

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Speaker 4: and letting it affect our decisions so it can make

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Speaker 4: better ones.

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Speaker 3: Since you mentioned the specific thing, whether you're looking at

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Speaker 3: the data that we see on the screen or the

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Speaker 3: data that you collect from talking to CEOs, what is

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Speaker 3: your assessment of the health of the labor market right now?

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Speaker 3: The proclivity to hire, the ease of finding a job.

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Speaker 3: How worried or happy are you about the status time.

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Speaker 4: I see that labor market is really balanced, and that's

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Speaker 4: something that I've been watching for and it hasn't ever

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Speaker 4: gotten into a dangerous weakness. It's definitely slowed, and earlier

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Speaker 4: in the year it was slowing at a rapid pace.

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Speaker 4: Now that slowing is settled out a bit. What we

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Speaker 4: hear from firms, So we do a lot of questions

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Speaker 4: and surveys and with firms and we talked to them.

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Speaker 4: What we're hearing is they don't have the kinds of

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Speaker 4: problems hiring workers that they once had, and they're increasingly

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Speaker 4: able to find workers of all different skill levels, which

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Speaker 4: you know, they had pockets of where they just couldn't

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Speaker 4: find anyone. Importantly, they're also saying that they think they

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Speaker 4: can now bring workers back to the office because they

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Speaker 4: have more bargaining power, if you will. Before, they know

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Speaker 4: nobody wants to come back to the office, and now

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Speaker 4: they don't have to say yes to that, and they

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Speaker 4: feel really good about that from their productivity perspective. So

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Speaker 4: then you go to workers and you say is it

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Speaker 4: hard to find jobs? And say, well, it takes a

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Speaker 4: little longer now and I'm hanging on to my existing

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Speaker 4: job a little longer because I don't want to take

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Speaker 4: the risk. But no, I can find jobs if I

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Speaker 4: really want them. So that's what when I think of

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Speaker 4: a perfectly balanced laver market, I think of workers might

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Speaker 4: take a little bit, but they find jobs. Firms say,

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Speaker 4: I can't get everything I want, but I can get workers,

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Speaker 4: and they're staying a little longer. But I am watching

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Speaker 4: it to see if any weakness emerges where workers start to,

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Speaker 4: you know, say, it's really challenging out there, and that

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Speaker 4: would be something we would want to avoid.

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Speaker 3: By the way, I have some good news to report

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Speaker 3: in the room. All right, you might be happy to

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Speaker 3: hear this. Core PCE just came in as you were

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Speaker 3: answering zero point one percent month over month versus expectations

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Speaker 3: of zero point two percent. So just a little live

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Speaker 3: date on the economic situation maybe makes your life ted

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Speaker 3: easier in twenty twenty five.

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Speaker 4: Well, I think it's just good news. I mean, you know,

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Speaker 4: one of the things when I see that incoming in information,

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Speaker 4: I remind myself of a couple of things. It's just

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Speaker 4: a one data point. We are not a data to

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Speaker 4: point dependent FED data point dependent FED. We're data dependent.

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Speaker 4: Can't react too much on one data point. And for

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Speaker 4: all the households and families and businesses out there, you know,

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Speaker 4: thinking about how can they manage inflation. I feel a

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Speaker 4: huge amount of relief that it's not is going in

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Speaker 4: the right direction. So we got a lot of work

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Speaker 4: to do. But that's good data.

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Speaker 2: All right, let's talk about I guess more more complicated things,

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Speaker 2: which would be the policy outlook. So we are recording

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Speaker 2: this on December twentieth. We might have a potential government

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Speaker 2: shut down. That's complication number one. And then secondly, we

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Speaker 2: will definitely have a new Trump administration that has some

437
00:22:59,800 --> 00:23:05,480
Speaker 2: new policy ideas, including tariffs and you know, potentially mass deportation.

438
00:23:06,480 --> 00:23:11,560
Speaker 2: How are you thinking through those sort of forwardlooking policy elements.

439
00:23:11,600 --> 00:23:13,480
Speaker 2: And one of the reasons I ask is because Pale

440
00:23:13,880 --> 00:23:16,800
Speaker 2: at the presser on Wednesday, he said there were some

441
00:23:16,960 --> 00:23:20,560
Speaker 2: members of the FMC who were starting to take that

442
00:23:20,960 --> 00:23:23,919
Speaker 2: possibility into account in terms of their forecasts. Are you

443
00:23:23,960 --> 00:23:24,440
Speaker 2: one of them?

444
00:23:24,560 --> 00:23:27,560
Speaker 4: I am not one of them. I actually have managed

445
00:23:27,600 --> 00:23:29,880
Speaker 4: through you know this, worked at the Central Bank here

446
00:23:30,359 --> 00:23:33,639
Speaker 4: versus an economist, and now as the president since nineteen

447
00:23:33,680 --> 00:23:35,760
Speaker 4: ninety six. And one of the things you learn is

448
00:23:35,800 --> 00:23:38,480
Speaker 4: I've been through several changes in administration. And one of

449
00:23:38,480 --> 00:23:40,399
Speaker 4: the things you learn if you do that is that

450
00:23:40,520 --> 00:23:44,880
Speaker 4: all administrations change. They bring in a slate of new programs.

451
00:23:45,280 --> 00:23:48,120
Speaker 4: Sometimes they talk about them a lot before they even

452
00:23:48,160 --> 00:23:51,360
Speaker 4: come into office. Sometimes they don't. But those new programs

453
00:23:51,520 --> 00:23:53,919
Speaker 4: are always things that cause you know, a lot of

454
00:23:54,520 --> 00:23:59,760
Speaker 4: sometimes fear, exuberance, enthusiasm, whatever it is, expectations. But it's

455
00:23:59,760 --> 00:24:02,040
Speaker 4: best for the Central Bank and my judgment, not to

456
00:24:02,640 --> 00:24:05,400
Speaker 4: engage in that kind of speculation. Let's let the administration

457
00:24:05,520 --> 00:24:09,359
Speaker 4: come in and put the full slate of programs together. Now,

458
00:24:09,359 --> 00:24:12,240
Speaker 4: why is that better? Well, first, in my judgment, why

459
00:24:12,280 --> 00:24:14,560
Speaker 4: do I do it that way? Well, first of all,

460
00:24:14,880 --> 00:24:17,800
Speaker 4: it doesn't mean we don't understand how models in data

461
00:24:17,840 --> 00:24:21,240
Speaker 4: and other things work, and that how different programs, whether

462
00:24:21,280 --> 00:24:27,080
Speaker 4: it's tax cuts, extended deregulation, tariffs, deportations, we can look

463
00:24:27,119 --> 00:24:30,360
Speaker 4: at how those things work from the research literature, from models.

464
00:24:30,359 --> 00:24:33,240
Speaker 4: We can think about that, so we're well prepared to

465
00:24:33,440 --> 00:24:36,240
Speaker 4: analyze it once the programs come into place. But there's

466
00:24:36,560 --> 00:24:41,320
Speaker 4: usually a fairly large difference between what any administration says

467
00:24:41,359 --> 00:24:44,240
Speaker 4: they would like to do and what they actually do

468
00:24:44,359 --> 00:24:46,199
Speaker 4: at the end of the day when they've worked with

469
00:24:46,280 --> 00:24:49,919
Speaker 4: members of Congress and the cabinet members, et cetera to

470
00:24:49,960 --> 00:24:53,920
Speaker 4: get a slate that really works for everyone. Importantly, it's

471
00:24:53,960 --> 00:24:56,439
Speaker 4: also and this is something that I speak about a lot,

472
00:24:56,640 --> 00:24:59,160
Speaker 4: it's also the net net effect of all of these.

473
00:24:59,400 --> 00:25:02,639
Speaker 4: So say you cut taxes, that's spurs growth. That's a

474
00:25:02,640 --> 00:25:07,080
Speaker 4: positive for growth. There's deregulation often a positive for growth.

475
00:25:07,480 --> 00:25:10,359
Speaker 4: Then you put tariffs can be a negative, and you

476
00:25:10,480 --> 00:25:13,520
Speaker 4: do you know, immigration it can be some people have

477
00:25:13,560 --> 00:25:16,280
Speaker 4: said that's a negative. It just take potentially workers from

478
00:25:16,320 --> 00:25:18,399
Speaker 4: the labor force. So you put all those things together,

479
00:25:18,440 --> 00:25:20,359
Speaker 4: and which you realize quickly is it depends on the

480
00:25:20,400 --> 00:25:24,480
Speaker 4: scope of the changes, the magnitude of those changes, the

481
00:25:24,520 --> 00:25:27,600
Speaker 4: timing of the changes, and how those things all net

482
00:25:27,600 --> 00:25:31,160
Speaker 4: out to leave the economy either with an impetus or

483
00:25:31,359 --> 00:25:34,000
Speaker 4: a restraint. And it's just too early to know any

484
00:25:34,040 --> 00:25:38,080
Speaker 4: of that. So instead, back to traveling around the district,

485
00:25:38,160 --> 00:25:40,840
Speaker 4: we ask our contacts, and what they're telling us is

486
00:25:41,560 --> 00:25:44,800
Speaker 4: they feel pretty okay about how things are likely to go.

487
00:25:44,840 --> 00:25:48,080
Speaker 4: If anything, they have the sentiments risen. And then the

488
00:25:48,160 --> 00:25:51,000
Speaker 4: other thing they say is if you're in retail or

489
00:25:51,160 --> 00:25:55,360
Speaker 4: manufacturing where you need inputs, they're just stockpiling some inventories.

490
00:25:55,680 --> 00:25:59,040
Speaker 4: So if there are some early tariffs discussions, they will

491
00:25:59,080 --> 00:26:01,359
Speaker 4: be prepared and then they expect it to resolve. Is

492
00:26:01,400 --> 00:26:03,440
Speaker 4: something that's not very harsh.

493
00:26:03,480 --> 00:26:06,160
Speaker 2: Speaking of sentiment, this is something I wanted to ask you, actually,

494
00:26:06,320 --> 00:26:08,400
Speaker 2: So one of the big stories for the past couple

495
00:26:08,440 --> 00:26:13,000
Speaker 2: of years was the terrible, terrible sentiment surveys. So you know,

496
00:26:13,040 --> 00:26:16,240
Speaker 2: if you looked at something like consumer sentiment, it looked

497
00:26:16,240 --> 00:26:19,760
Speaker 2: like we were already in a massive recession. People felt

498
00:26:19,760 --> 00:26:23,359
Speaker 2: absolutely awful. And of course, since November we've seen some

499
00:26:23,400 --> 00:26:26,520
Speaker 2: of those surveys start to turn People are turning more positive.

500
00:26:26,640 --> 00:26:30,239
Speaker 2: The small business survey has spiked quite a bit. How

501
00:26:30,320 --> 00:26:33,760
Speaker 2: much emphasis would you place on those surveys given that

502
00:26:33,800 --> 00:26:36,359
Speaker 2: there was such a big discrepancy between the heart and

503
00:26:36,400 --> 00:26:39,000
Speaker 2: the soft data, you know, just a year or two ago,

504
00:26:39,400 --> 00:26:41,800
Speaker 2: is it possible we could get another discrepancy, but just

505
00:26:41,840 --> 00:26:43,320
Speaker 2: going in the other direction.

506
00:26:43,800 --> 00:26:47,919
Speaker 4: You know, I think it's possible. But in the before

507
00:26:48,000 --> 00:26:52,000
Speaker 4: I really understood the discrepancy. And here's how I understood.

508
00:26:52,320 --> 00:26:54,040
Speaker 4: You could see it when you would talk to people

509
00:26:54,560 --> 00:26:58,880
Speaker 4: is they felt like inflation had raised the price level

510
00:26:59,000 --> 00:27:01,760
Speaker 4: so much they weren't able to catch up, so it

511
00:27:01,760 --> 00:27:05,000
Speaker 4: had stolen something from them. Because it's a tax, it's

512
00:27:05,240 --> 00:27:07,840
Speaker 4: it feels toxic to people, and they felt like they

513
00:27:07,840 --> 00:27:10,040
Speaker 4: weren't going to ever catch up, and that the economy

514
00:27:10,119 --> 00:27:13,200
Speaker 4: might break, we might fall into a recession. So part

515
00:27:13,200 --> 00:27:16,280
Speaker 4: of the sentiment turn that I've seen started in about

516
00:27:16,280 --> 00:27:18,880
Speaker 4: in the middle of the summer, and it started when

517
00:27:19,440 --> 00:27:22,200
Speaker 4: people thought, oh, we're actually not going to have a recession.

518
00:27:22,480 --> 00:27:25,360
Speaker 4: The economy will continue on and I will be able

519
00:27:25,400 --> 00:27:28,399
Speaker 4: to grow out of you know, with my wages and

520
00:27:28,440 --> 00:27:31,439
Speaker 4: my earnings, I'll be able to get ground, gain ground

521
00:27:31,440 --> 00:27:33,280
Speaker 4: on what I lost, and I'll be able to restore

522
00:27:33,320 --> 00:27:35,840
Speaker 4: where I was before the pandemic and maybe even grow

523
00:27:35,880 --> 00:27:38,480
Speaker 4: beyond that. And now with some of the changes for

524
00:27:38,600 --> 00:27:42,000
Speaker 4: businesses and small businesses, our small businesses tell us that too,

525
00:27:42,359 --> 00:27:45,160
Speaker 4: with some of the changes, they're somewhat hopeful that they'll

526
00:27:45,200 --> 00:27:47,840
Speaker 4: be They like the extended tax cuts, the pretty They

527
00:27:47,840 --> 00:27:51,680
Speaker 4: were hopeful that some aspects of regulation won't be won't

528
00:27:51,720 --> 00:27:54,440
Speaker 4: feel as hard to manage. But you know, they don't know,

529
00:27:54,560 --> 00:27:57,760
Speaker 4: they're just more they're hopeful. And so they say this too.

530
00:27:58,000 --> 00:28:01,760
Speaker 4: You know, enthusiasm has to be backed with reality, and

531
00:28:01,840 --> 00:28:05,560
Speaker 4: so right now they feel enthusiastic or optimistic, but they're

532
00:28:05,560 --> 00:28:08,760
Speaker 4: still cautious in that cautiousness that spending their own money

533
00:28:08,800 --> 00:28:11,480
Speaker 4: on things that's only going to be removed when we

534
00:28:11,560 --> 00:28:17,040
Speaker 4: really see how the economy and the policy changes are

535
00:28:17,200 --> 00:28:17,760
Speaker 4: netting out.

536
00:28:18,400 --> 00:28:22,400
Speaker 3: Let's talk about as you mentioned, theoretical policy changes under

537
00:28:22,440 --> 00:28:25,960
Speaker 3: the incoming administration. You are not one of the members

538
00:28:26,000 --> 00:28:28,600
Speaker 3: who cause that to change how you're thinking about twenty

539
00:28:28,640 --> 00:28:30,560
Speaker 3: twenty five because, as you said, we don't know, We

540
00:28:30,600 --> 00:28:32,120
Speaker 3: don't know how it's going to net out, et cetera.

541
00:28:32,240 --> 00:28:35,240
Speaker 3: Of the academic literature, but it's hard to know. But

542
00:28:35,480 --> 00:28:40,160
Speaker 3: speaking of the academic literature, one thing that's commonly said is, well,

543
00:28:40,160 --> 00:28:43,120
Speaker 3: a tariff is sort of a one off increase in

544
00:28:43,160 --> 00:28:46,000
Speaker 3: the price level and doesn't necessarily transitory.

545
00:28:46,160 --> 00:28:47,320
Speaker 2: Is it transitory tere.

546
00:28:47,200 --> 00:28:52,400
Speaker 3: In a sense transitory. I'm never really satisfied with that answer, because, Okay,

547
00:28:52,440 --> 00:28:54,680
Speaker 3: that may be true that a tariff does cause a

548
00:28:54,680 --> 00:28:57,600
Speaker 3: one off increase in prices, et cetera, but doesn't change

549
00:28:57,600 --> 00:29:00,760
Speaker 3: the overall trajectory. On the other hand, in theory, it

550
00:29:00,840 --> 00:29:04,080
Speaker 3: creates an impetus for a structural adjustment to the economy

551
00:29:04,080 --> 00:29:06,640
Speaker 3: that could be costly. If it's just or to build

552
00:29:06,760 --> 00:29:10,160
Speaker 3: more in the US to avoid tariffs, then that means

553
00:29:10,240 --> 00:29:13,360
Speaker 3: more spending and more investment. And as you described, one

554
00:29:13,360 --> 00:29:16,120
Speaker 3: of the drivers of the sort of new hire neutral

555
00:29:16,320 --> 00:29:20,560
Speaker 3: is this impulse among companies to spend. So how do

556
00:29:20,680 --> 00:29:25,280
Speaker 3: you think about again we don't know the details, but

557
00:29:25,320 --> 00:29:27,480
Speaker 3: when you hear the word tariffs, and whether it's a

558
00:29:27,680 --> 00:29:30,440
Speaker 3: global tariff, whether it's a tariff on some countries or

559
00:29:30,440 --> 00:29:33,960
Speaker 3: not others, how do you think about potential ramifications of that?

560
00:29:34,280 --> 00:29:36,440
Speaker 4: Sure, I mean, I think that's actually a terrific question

561
00:29:36,560 --> 00:29:39,640
Speaker 4: because it's I think it highlights first of all, that

562
00:29:39,800 --> 00:29:44,440
Speaker 4: it's very challenging to make simple statements about complicated changes

563
00:29:44,480 --> 00:29:48,320
Speaker 4: in policy. So an example is in the classic models,

564
00:29:48,440 --> 00:29:50,560
Speaker 4: a tariff would be a one off you just raise it.

565
00:29:50,840 --> 00:29:53,920
Speaker 4: That's a classic model that doesn't have any retaliation, it

566
00:29:53,960 --> 00:29:56,320
Speaker 4: doesn't have any knock on effects as we would call them.

567
00:29:56,320 --> 00:29:59,520
Speaker 4: Where you know, you say you teariff an intermediate input, Well,

568
00:29:59,520 --> 00:30:02,560
Speaker 4: that's going to filter through the economy into the price

569
00:30:02,560 --> 00:30:06,040
Speaker 4: of other goods that are produced using this intermediate input.

570
00:30:06,280 --> 00:30:09,080
Speaker 4: That's unlikely to be just the one off time it'll

571
00:30:09,200 --> 00:30:11,480
Speaker 4: filter through, and the duration of the time it takes

572
00:30:11,520 --> 00:30:14,040
Speaker 4: for that to filter through is very challenging to know,

573
00:30:14,440 --> 00:30:17,880
Speaker 4: ex ante in advance. So I think it just is

574
00:30:18,000 --> 00:30:21,560
Speaker 4: much more complicated than you look through it now standard

575
00:30:21,560 --> 00:30:24,200
Speaker 4: classic textbook models would tell you do you look through it.

576
00:30:24,920 --> 00:30:27,440
Speaker 4: I tend not to see transitory very much. I think that,

577
00:30:27,560 --> 00:30:29,560
Speaker 4: you know, that's a word I wasn't using a lot

578
00:30:29,600 --> 00:30:31,600
Speaker 4: before and I'm certainly not using now. So I'm going

579
00:30:31,640 --> 00:30:33,840
Speaker 4: to say, you know, one off, she just raise it

580
00:30:33,880 --> 00:30:36,520
Speaker 4: and then it goes. But the practice of it has

581
00:30:36,680 --> 00:30:40,360
Speaker 4: suggested that the economy is more complicated and it it

582
00:30:40,480 --> 00:30:42,680
Speaker 4: takes some time to filter through now in terms of

583
00:30:42,680 --> 00:30:45,040
Speaker 4: the structural changes, I mean, that's part of why tariffs

584
00:30:45,040 --> 00:30:48,000
Speaker 4: are applied oftentimes they want a more fair playing field.

585
00:30:48,320 --> 00:30:51,440
Speaker 4: Are elected officials because voters have said, we want a

586
00:30:51,480 --> 00:30:54,000
Speaker 4: fairer playing field, and when you put a fair playing

587
00:30:54,040 --> 00:30:57,080
Speaker 4: field in you might see a reorganization of activity to

588
00:30:57,160 --> 00:30:59,680
Speaker 4: adjust to that new fairer playing field. But that was

589
00:30:59,680 --> 00:31:03,080
Speaker 4: the tension all along. And so ultimately this is why

590
00:31:03,120 --> 00:31:06,360
Speaker 4: the Central Bank is independent and outside of what elected

591
00:31:06,360 --> 00:31:09,400
Speaker 4: officials do. It's one of the reasons elected officials are

592
00:31:09,400 --> 00:31:13,720
Speaker 4: elected by voters to make decisions that are bettering society. Overall,

593
00:31:13,880 --> 00:31:17,160
Speaker 4: the economy and society, and even when you don't agree

594
00:31:17,200 --> 00:31:19,960
Speaker 4: with those that's still the intention, right that all different

595
00:31:20,000 --> 00:31:23,120
Speaker 4: elected officials come out to try to do the FED.

596
00:31:23,600 --> 00:31:26,840
Speaker 4: We only have two goals, price stability, full employment, and

597
00:31:26,920 --> 00:31:29,239
Speaker 4: so we're taking the economy we have, and if there

598
00:31:29,240 --> 00:31:32,840
Speaker 4: are structural changes that temporarily boost the price level on

599
00:31:32,960 --> 00:31:35,840
Speaker 4: things or just you know, we're persistently due, we would

600
00:31:35,840 --> 00:31:37,960
Speaker 4: have to work to make sure that that doesn't cause

601
00:31:38,000 --> 00:31:41,320
Speaker 4: inflation to rise above two percent and that somehow we

602
00:31:41,360 --> 00:31:44,120
Speaker 4: don't end up losing our full employment the place in

603
00:31:44,120 --> 00:31:46,920
Speaker 4: full employment that we have now. So that is a

604
00:31:46,960 --> 00:31:49,720
Speaker 4: healthy tension in my judgment, but it's also why the

605
00:31:49,760 --> 00:31:52,800
Speaker 4: FED is independent from It's one of the reasons our

606
00:31:52,840 --> 00:31:55,080
Speaker 4: founding fathers. They were all fathers at the time. I

607
00:31:55,080 --> 00:31:57,000
Speaker 4: know we'd like to change those words sometimes, but they

608
00:31:57,000 --> 00:31:59,640
Speaker 4: were all following fathers, and it's why they did that

609
00:31:59,800 --> 00:32:02,400
Speaker 4: is it's because they wanted that tension to be there,

610
00:32:02,640 --> 00:32:03,720
Speaker 4: in my judgment.

611
00:32:04,320 --> 00:32:06,760
Speaker 2: So Joe and I were in San Francisco a few

612
00:32:06,800 --> 00:32:07,320
Speaker 2: weeks ago.

613
00:32:07,720 --> 00:32:09,200
Speaker 4: I know I missed you. I'm sorry.

614
00:32:09,360 --> 00:32:11,000
Speaker 2: I know it would have been great to catch up,

615
00:32:11,040 --> 00:32:15,800
Speaker 2: but I was in some other I love. I was

616
00:32:15,800 --> 00:32:18,560
Speaker 2: literally about to talk about the weaibo. Okay, I went

617
00:32:18,600 --> 00:32:20,640
Speaker 2: in my first ever WEIMO, and it kind of it

618
00:32:20,640 --> 00:32:22,880
Speaker 2: blew me away, and we met with lots of vcs

619
00:32:22,920 --> 00:32:25,160
Speaker 2: who are talking about all the cool stuff they're seeing

620
00:32:25,200 --> 00:32:28,360
Speaker 2: in terms of AI. You sort of have a front

621
00:32:28,440 --> 00:32:32,200
Speaker 2: row seat for AI, given you know your geographic location

622
00:32:32,360 --> 00:32:35,600
Speaker 2: in San Francisco. Talk to us about how you're thinking

623
00:32:35,640 --> 00:32:39,840
Speaker 2: through AI and its impact on productivity because obviously a

624
00:32:39,880 --> 00:32:42,640
Speaker 2: lot of people expect a big productivity boost from this

625
00:32:42,760 --> 00:32:45,440
Speaker 2: new technology, but you know, like so far, I think

626
00:32:45,440 --> 00:32:48,440
Speaker 2: it kind of remains something of a hypothetical, like at

627
00:32:48,520 --> 00:32:51,480
Speaker 2: large scale, But what are you watching for in terms

628
00:32:51,480 --> 00:32:55,200
Speaker 2: of monitoring the actual impact of AI on productivity?

629
00:32:55,480 --> 00:32:58,239
Speaker 4: So we're already seeing this. And one thing that if

630
00:32:58,240 --> 00:33:00,720
Speaker 4: you go back to you Robert Solo, so there's a

631
00:33:00,760 --> 00:33:03,440
Speaker 4: famous quote that you can see productivity everywhere except in

632
00:33:03,480 --> 00:33:06,959
Speaker 4: the productivity data. And you're really seeing that now. And

633
00:33:07,040 --> 00:33:08,600
Speaker 4: you know, I came to work at the FED in

634
00:33:08,680 --> 00:33:10,720
Speaker 4: nineteen ninety six. So one of the first jobs I

635
00:33:10,800 --> 00:33:13,480
Speaker 4: had sitting at the San Francisco FED as an economist

636
00:33:13,920 --> 00:33:18,280
Speaker 4: was to collect evidence of a burgeoning productivity boom for

637
00:33:18,400 --> 00:33:21,720
Speaker 4: Chairman Greenspan. Oh wow, it was literally what isn't that

638
00:33:21,840 --> 00:33:23,720
Speaker 4: like the coolest thing? You land at the FED, you're

639
00:33:23,720 --> 00:33:26,240
Speaker 4: doing research on the labor market, and suddenly the chairman

640
00:33:26,320 --> 00:33:28,600
Speaker 4: of the Fed's interested in you collecting this information.

641
00:33:28,760 --> 00:33:30,320
Speaker 2: So this would have been the early two thousands when

642
00:33:30,520 --> 00:33:32,120
Speaker 2: since he was talking about like the big this.

643
00:33:32,120 --> 00:33:34,680
Speaker 4: Is ninety seven, ninety eight, you know, really before we

644
00:33:34,720 --> 00:33:37,080
Speaker 4: even got there, and he's he was an early spotter

645
00:33:37,440 --> 00:33:40,640
Speaker 4: that if people are using computers, you're not going to

646
00:33:40,720 --> 00:33:43,920
Speaker 4: see it in the data just yet, because what they're

647
00:33:43,960 --> 00:33:47,760
Speaker 4: doing is they're buying all this equipment, but they it's

648
00:33:47,800 --> 00:33:50,960
Speaker 4: really the software and the change in how they did

649
00:33:51,000 --> 00:33:53,600
Speaker 4: their work that was going to boost the productivity. So

650
00:33:53,680 --> 00:33:56,240
Speaker 4: let me give you a cool example. Now this didn't

651
00:33:56,240 --> 00:33:58,800
Speaker 4: happen until the early two thousands, but still a cool example.

652
00:33:59,200 --> 00:34:05,240
Speaker 4: So before, before we had the internet and the computers

653
00:34:05,280 --> 00:34:09,880
Speaker 4: and connected networks and things, the gas meter readers had

654
00:34:09,920 --> 00:34:12,319
Speaker 4: to come to your house and come up to your

655
00:34:12,400 --> 00:34:14,799
Speaker 4: meter and read it and write it down in a

656
00:34:14,840 --> 00:34:17,919
Speaker 4: notebook or to type it into a little machine. And

657
00:34:18,200 --> 00:34:20,640
Speaker 4: they were getting bitten by dogs or they couldn't get in,

658
00:34:20,680 --> 00:34:23,600
Speaker 4: and meters weren't getting written read, et cetera, et cetera.

659
00:34:24,160 --> 00:34:27,719
Speaker 4: With this technology, they produced cars. This happened first The

660
00:34:27,719 --> 00:34:29,480
Speaker 4: first place I ever saw this was Salt Lake City.

661
00:34:29,560 --> 00:34:32,040
Speaker 4: They had trucks, and the trucks had readers on them,

662
00:34:32,239 --> 00:34:35,560
Speaker 4: and they would communicate with your meter, which was a

663
00:34:35,600 --> 00:34:37,480
Speaker 4: smart meter, and they didn't have to get out of

664
00:34:37,480 --> 00:34:40,200
Speaker 4: the vehicle. And so no one's getting bitten by a dog.

665
00:34:40,239 --> 00:34:43,160
Speaker 4: People are all their meters are being read. Productivity goes up,

666
00:34:43,200 --> 00:34:47,160
Speaker 4: safety goes up, and importantly people's bills go down and

667
00:34:47,280 --> 00:34:49,799
Speaker 4: are more accurate because you're not estimating them. So that

668
00:34:49,960 --> 00:34:52,080
Speaker 4: was an example, and those were the kinds of examples

669
00:34:52,400 --> 00:34:55,239
Speaker 4: I was giving Chairman Greenspan, and he was saying, Okay,

670
00:34:55,320 --> 00:34:57,960
Speaker 4: we're going to see it everywhere except in the data,

671
00:34:58,400 --> 00:35:01,759
Speaker 4: and sure enough turned out to be right. Pardevity was

672
00:35:01,800 --> 00:35:04,319
Speaker 4: all over the place. And eventually, when the data got

673
00:35:04,360 --> 00:35:06,360
Speaker 4: revised and we got better at biggering on what was

674
00:35:06,400 --> 00:35:08,680
Speaker 4: going on, we saw that we had a computer revolution.

675
00:35:09,160 --> 00:35:12,680
Speaker 4: The same thing appears to be happening with AI. And

676
00:35:12,760 --> 00:35:15,399
Speaker 4: again I want to caution people from thinking it's all

677
00:35:15,440 --> 00:35:18,440
Speaker 4: about chat, GPT or perplexity or any of the other models.

678
00:35:18,440 --> 00:35:20,279
Speaker 4: I'm not trying to advertise models, but those are the

679
00:35:20,280 --> 00:35:23,239
Speaker 4: ones that get a lot of attention. So but it's

680
00:35:23,280 --> 00:35:27,240
Speaker 4: not about any particular model. It's really about machine learning,

681
00:35:27,520 --> 00:35:32,680
Speaker 4: it's about you know, robotic processing, automation, just people businesses

682
00:35:32,800 --> 00:35:35,759
Speaker 4: doing things. And so we started a network called the

683
00:35:36,120 --> 00:35:39,080
Speaker 4: Emerging Tech Economic Research Network at the San Francisco FED

684
00:35:39,080 --> 00:35:41,560
Speaker 4: and we're spending a lot of time with researchers, but

685
00:35:41,600 --> 00:35:44,800
Speaker 4: we're also spending a lot of time with CEOs and

686
00:35:45,840 --> 00:35:48,480
Speaker 4: CIOs and we're asking them what are you doing? And

687
00:35:48,520 --> 00:35:51,760
Speaker 4: it is astounding how many companies in the United States,

688
00:35:52,000 --> 00:35:54,359
Speaker 4: probably the globe. We're focused on the United States first,

689
00:35:54,719 --> 00:35:58,040
Speaker 4: are using these things, everything from furniture companies to improve

690
00:35:58,080 --> 00:36:02,120
Speaker 4: their sales, to design companies to figure out how to

691
00:36:02,120 --> 00:36:06,560
Speaker 4: design things faster and more accurately idea generation. So we're

692
00:36:06,600 --> 00:36:09,040
Speaker 4: seeing it everywhere. I don't think we'll see it in

693
00:36:09,120 --> 00:36:12,520
Speaker 4: measured productivity right away, and you shouldn't expect to, but

694
00:36:12,680 --> 00:36:15,560
Speaker 4: it's the emphasis of change is there. And so it's

695
00:36:15,560 --> 00:36:18,319
Speaker 4: not all about the weay mos or the zekes. You

696
00:36:18,400 --> 00:36:20,359
Speaker 4: have to write in the zekes next time, but it's

697
00:36:20,440 --> 00:36:25,160
Speaker 4: really about businesses thinking about how to use technology to

698
00:36:25,239 --> 00:36:30,799
Speaker 4: make their teams stronger, more capable, less tedious work get

699
00:36:30,800 --> 00:36:33,800
Speaker 4: the job done. And I think that's potentially a huge benefit.

700
00:36:34,000 --> 00:36:37,040
Speaker 4: It could take a decade, but it is happening.

701
00:36:37,760 --> 00:36:39,279
Speaker 3: First of all, it must be fun to be the

702
00:36:39,600 --> 00:36:43,200
Speaker 3: sef FED president. I'm sure every regional FED president thinks

703
00:36:43,320 --> 00:36:46,400
Speaker 3: there region is great, but a have so much territory,

704
00:36:46,400 --> 00:36:48,920
Speaker 3: it'd be all the coolest stuff in the world is

705
00:36:48,920 --> 00:36:50,160
Speaker 3: happening in your district.

706
00:36:50,880 --> 00:36:53,120
Speaker 4: I agree, actually, but you know I shouldn't say that.

707
00:36:54,680 --> 00:36:56,920
Speaker 3: So I want to actually go back to you know,

708
00:36:57,040 --> 00:36:59,279
Speaker 3: you talked about this, and first of all, I did

709
00:36:59,320 --> 00:37:01,600
Speaker 3: find that just sort of a very fascinating reminder that

710
00:37:01,640 --> 00:37:04,040
Speaker 3: at the beginning of the dot com boom, first there

711
00:37:04,160 --> 00:37:06,799
Speaker 3: was just a bunch of costly spending on computers, and

712
00:37:06,840 --> 00:37:09,040
Speaker 3: it took a while before businesses figured out what they

713
00:37:09,040 --> 00:37:10,400
Speaker 3: were going to do with them. And so when you

714
00:37:10,440 --> 00:37:13,560
Speaker 3: think about the sort of lagged effects of that spending,

715
00:37:13,640 --> 00:37:15,800
Speaker 3: that's interesting. Going back to when we were having the

716
00:37:15,800 --> 00:37:18,359
Speaker 3: more theoretical part of the conversation and you talked about

717
00:37:18,400 --> 00:37:21,000
Speaker 3: why the neutral rate might be higher, you mentioned the

718
00:37:21,120 --> 00:37:24,719
Speaker 3: higher proclivity to invest, but also mentioned there's a lot

719
00:37:24,760 --> 00:37:28,040
Speaker 3: of government borrowing right now, and you know, one of

720
00:37:28,040 --> 00:37:30,960
Speaker 3: the things that the new administration says it wants to

721
00:37:31,040 --> 00:37:34,280
Speaker 3: do with the incoming treasury secretary is take more seriously

722
00:37:34,480 --> 00:37:37,520
Speaker 3: the deficit. I am a person, as I've hinted on

723
00:37:37,800 --> 00:37:40,239
Speaker 3: the podcast before, who has a loan that is going

724
00:37:40,280 --> 00:37:43,320
Speaker 3: to have to be refinanced in a couple of years.

725
00:37:43,320 --> 00:37:46,560
Speaker 3: I would love to see lower rates, setting aside what

726
00:37:46,640 --> 00:37:50,480
Speaker 3: the ideal mix of deficit reduction, etc. If we want

727
00:37:50,520 --> 00:37:54,600
Speaker 3: to get to a sort of sustainably lower band for rates.

728
00:37:54,880 --> 00:37:58,560
Speaker 3: And you mentioned it's a global phenomenon, does lower deficit

729
00:37:58,600 --> 00:38:01,399
Speaker 3: spending seem like one of the key components to it.

730
00:38:02,239 --> 00:38:06,920
Speaker 4: You know, I don't make those fiscal decisions, but ultimately

731
00:38:07,200 --> 00:38:10,839
Speaker 4: it matters. Total spending is what matters. So if the

732
00:38:10,880 --> 00:38:15,600
Speaker 4: government spending goes down, and it's what happens is private

733
00:38:15,640 --> 00:38:18,680
Speaker 4: sector spending goes up to fill that difference, then it

734
00:38:18,680 --> 00:38:21,920
Speaker 4: won't really have much effect on the interest rate. But

735
00:38:22,160 --> 00:38:25,480
Speaker 4: if we get a reduction in net spending because of that,

736
00:38:25,840 --> 00:38:29,960
Speaker 4: then you could. But importantly, I think this is something

737
00:38:30,000 --> 00:38:32,759
Speaker 4: that usually gets lost because most countries only talk about

738
00:38:32,760 --> 00:38:36,880
Speaker 4: their own country because that's what's important to them. Sovereigns

739
00:38:36,880 --> 00:38:39,920
Speaker 4: across the globe, we're spending more money, right and that's

740
00:38:39,960 --> 00:38:42,680
Speaker 4: you know, it's partly a response to the pandemic and

741
00:38:42,719 --> 00:38:46,240
Speaker 4: then you know, kind of get used to it and going.

742
00:38:46,280 --> 00:38:49,520
Speaker 4: And so I think this is a global, a global issue.

743
00:38:49,520 --> 00:38:51,800
Speaker 4: And then of course we still have the aging population

744
00:38:51,880 --> 00:38:53,920
Speaker 4: that's working through that we have to pay for. And

745
00:38:53,960 --> 00:38:57,960
Speaker 4: that's true in almost every country, industrialized country in the world.

746
00:38:58,000 --> 00:39:01,799
Speaker 4: Every transition energy trans then you get technology that could

747
00:39:01,840 --> 00:39:04,160
Speaker 4: help us, we could get more productive, but you do

748
00:39:04,200 --> 00:39:06,239
Speaker 4: all these things and they end up becoming you know,

749
00:39:06,320 --> 00:39:09,640
Speaker 4: expensive changes at a time when we're already paying for

750
00:39:09,680 --> 00:39:12,799
Speaker 4: the aging population, and then we keep borrowing to do it.

751
00:39:12,880 --> 00:39:14,960
Speaker 4: And it's just you know, it's a different environment that

752
00:39:15,000 --> 00:39:17,560
Speaker 4: we were in prior to the pandemic, and we'll we'll

753
00:39:17,560 --> 00:39:19,400
Speaker 4: have to deal with that. So I don't know that

754
00:39:19,400 --> 00:39:21,880
Speaker 4: we can give you a lot of near term relief

755
00:39:21,920 --> 00:39:24,640
Speaker 4: on your refinancing issue, but I do think these are

756
00:39:24,680 --> 00:39:27,319
Speaker 4: problems that all nations are going to have to wrestle with.

757
00:39:28,080 --> 00:39:30,839
Speaker 2: The nice thing about having the podcast as a platform, Joe,

758
00:39:30,920 --> 00:39:33,600
Speaker 2: is that you can personally lobby the FED for a

759
00:39:33,680 --> 00:39:34,719
Speaker 2: lower refi rate.

760
00:39:35,080 --> 00:39:39,440
Speaker 3: That isdefended cut rage and it doesn't even lower the

761
00:39:39,440 --> 00:39:40,240
Speaker 3: mortgage rate anyway.

762
00:39:40,280 --> 00:39:43,040
Speaker 4: Sorry, I keep going, No, I just I think ultimately

763
00:39:43,120 --> 00:39:45,040
Speaker 4: they you know this a that's another thing that we

764
00:39:45,560 --> 00:39:49,319
Speaker 4: control the short term interest rate in it filters through

765
00:39:49,360 --> 00:39:52,440
Speaker 4: to other interest rates. But we live in a global economy,

766
00:39:52,440 --> 00:39:54,640
Speaker 4: and we live in a world where interest rates can

767
00:39:54,680 --> 00:39:56,799
Speaker 4: move around for a variety of reasons, just like the

768
00:39:56,840 --> 00:40:00,719
Speaker 4: stock market. And you know what really is what's important

769
00:40:00,840 --> 00:40:04,400
Speaker 4: is that, ultimately, if you stack up has monetary policy

770
00:40:04,440 --> 00:40:08,759
Speaker 4: been working? You can see evidence, clear evidence that not

771
00:40:08,880 --> 00:40:11,680
Speaker 4: just supply driven inflation has gone down, So the supply

772
00:40:11,719 --> 00:40:15,640
Speaker 4: has improved, inflation's fallen, but the demand component has gone

773
00:40:15,680 --> 00:40:18,160
Speaker 4: down and things are rebalanced. So I still think monetary

774
00:40:18,160 --> 00:40:21,640
Speaker 4: policy works. But that's a different question than what rate

775
00:40:21,719 --> 00:40:24,239
Speaker 4: will we settle at, and in all likelihood it'll be

776
00:40:24,320 --> 00:40:26,960
Speaker 4: higher than we saw it prior to the pandemic.

777
00:40:27,160 --> 00:40:29,440
Speaker 3: I just have one last question, and it's sort of

778
00:40:29,520 --> 00:40:33,680
Speaker 3: a Fed watcher question. I hope you're not offended by this,

779
00:40:33,800 --> 00:40:36,480
Speaker 3: but before we did the episode, I had to look

780
00:40:36,560 --> 00:40:38,279
Speaker 3: up as like is she a voting member or not?

781
00:40:38,520 --> 00:40:40,279
Speaker 3: As I forget who is a voting member?

782
00:40:40,320 --> 00:40:43,440
Speaker 4: Of course we forget. No, I'm kidding, I'm kidding.

783
00:40:45,080 --> 00:40:47,840
Speaker 3: People who are fedwatchers sometimes talk a lot about the

784
00:40:47,880 --> 00:40:50,359
Speaker 3: hawk dove meter and who's rotating in and out one

785
00:40:50,440 --> 00:40:53,479
Speaker 3: year and there's this person more hawkish, more dubbish. You're

786
00:40:53,520 --> 00:40:57,279
Speaker 3: currently a voting member right now. How significant is it

787
00:40:57,320 --> 00:40:59,800
Speaker 3: when you think about especially now that we have the dots.

788
00:41:00,080 --> 00:41:01,759
Speaker 3: People pay a lot of attention to the dots and

789
00:41:01,760 --> 00:41:04,040
Speaker 3: everyone puts an a doubt regardless of whether they're a

790
00:41:04,120 --> 00:41:06,799
Speaker 3: voting member or not, and those seem to be influential.

791
00:41:07,200 --> 00:41:11,120
Speaker 3: How important is it for the sort of average person

792
00:41:11,239 --> 00:41:14,160
Speaker 3: or FED watcher to pay close attention to who has

793
00:41:14,280 --> 00:41:16,759
Speaker 3: a vote at any given time or from the perspective

794
00:41:16,840 --> 00:41:19,560
Speaker 3: of a someone who rotates in and out, how much

795
00:41:19,600 --> 00:41:22,959
Speaker 3: does it change you believe your influence on the state

796
00:41:23,000 --> 00:41:25,040
Speaker 3: of policy, whether you actually formally have a vote at

797
00:41:25,080 --> 00:41:27,080
Speaker 3: a given meeting or no. I've never seen an effect.

798
00:41:27,840 --> 00:41:28,720
Speaker 3: This is really interesting.

799
00:41:28,760 --> 00:41:31,080
Speaker 4: I've never seen an effect in my entire history working

800
00:41:31,120 --> 00:41:32,960
Speaker 4: for the fat even when I was just staffing the

801
00:41:33,040 --> 00:41:36,000
Speaker 4: FMC and not Audien. I just have never seen an effect.

802
00:41:36,040 --> 00:41:43,040
Speaker 4: I mean, what is influential are ideas, arguments, evidence, thoughtfulness

803
00:41:43,040 --> 00:41:45,200
Speaker 4: about where we should go and how we should get there,

804
00:41:45,640 --> 00:41:49,680
Speaker 4: and being willing to interrogate and ask questions even when

805
00:41:49,680 --> 00:41:53,160
Speaker 4: you're sure. I mean, ultimately, we're best with each other

806
00:41:53,520 --> 00:41:57,120
Speaker 4: when we question and question and question again and be

807
00:41:57,239 --> 00:42:01,000
Speaker 4: skeptical and curious, and skeptical you come in and you

808
00:42:01,040 --> 00:42:03,239
Speaker 4: say you know, I already know the answer. You're not

809
00:42:03,320 --> 00:42:06,200
Speaker 4: actually as useful as you come in and say I'm

810
00:42:06,239 --> 00:42:08,400
Speaker 4: thinking about it this way or you thinking about it differently,

811
00:42:08,400 --> 00:42:10,960
Speaker 4: And we have those rigorous debates. So if that's the

812
00:42:11,000 --> 00:42:13,759
Speaker 4: main thing that's beneficial about being together and being on

813
00:42:13,800 --> 00:42:16,320
Speaker 4: this committee, then you can see that voting doesn't matter

814
00:42:16,400 --> 00:42:19,400
Speaker 4: because you really don't pay attention to the vote that

815
00:42:19,440 --> 00:42:21,880
Speaker 4: people are talking about. You pay attention to the arguments

816
00:42:21,920 --> 00:42:24,360
Speaker 4: that they're making. And so I've actually never seen a

817
00:42:24,480 --> 00:42:27,480
Speaker 4: difference in my tenure under any chair. Work for four

818
00:42:27,560 --> 00:42:31,400
Speaker 4: chairs at this point, I've never seen any difference. And

819
00:42:31,960 --> 00:42:33,960
Speaker 4: one of the things that also is true is that

820
00:42:34,239 --> 00:42:36,960
Speaker 4: chairs are willing to take two sense and they're willing

821
00:42:37,200 --> 00:42:39,799
Speaker 4: to live with differences of opinion. And the dots are

822
00:42:40,320 --> 00:42:44,040
Speaker 4: a tremendous example of that. Right you look at the

823
00:42:44,040 --> 00:42:46,800
Speaker 4: dots and they are as the uncertainty of the economy

824
00:42:46,840 --> 00:42:49,759
Speaker 4: is going up and it's not clear what the right

825
00:42:49,840 --> 00:42:53,320
Speaker 4: answer is for next year. The dispersion in people's estimates

826
00:42:53,320 --> 00:42:57,400
Speaker 4: about the forecast, the neutral rate of interest, and the

827
00:42:57,440 --> 00:43:01,080
Speaker 4: policy that will be appropriate next year. They're just they're

828
00:43:01,080 --> 00:43:04,760
Speaker 4: getting more dispersed. That is a benefit. That's a feature,

829
00:43:04,800 --> 00:43:06,840
Speaker 4: not a bug, as we like to say. And I

830
00:43:06,840 --> 00:43:09,320
Speaker 4: think it just speaks to the idea that voting doesn't

831
00:43:09,360 --> 00:43:12,800
Speaker 4: matter and the rotation is not that relevant. What's relevant

832
00:43:12,960 --> 00:43:16,440
Speaker 4: is arguments and thoughts. And you know, luckily we have

833
00:43:16,440 --> 00:43:18,919
Speaker 4: a very transparent fed so you can go and read

834
00:43:18,920 --> 00:43:22,000
Speaker 4: people's speeches and remarks, see their interviews, hear their podcasts

835
00:43:22,000 --> 00:43:24,960
Speaker 4: here Odd Lucked, and you can go to make your

836
00:43:24,960 --> 00:43:26,480
Speaker 4: own determination as a citizen.

837
00:43:26,760 --> 00:43:29,120
Speaker 6: I'm noticed in the beginning you were still talking about

838
00:43:29,120 --> 00:43:32,040
Speaker 6: like working towards a soft landing, And my question is,

839
00:43:32,040 --> 00:43:34,520
Speaker 6: like when you actually get to say we did it,

840
00:43:34,719 --> 00:43:37,200
Speaker 6: because like two years ago, I don't think anyone would

841
00:43:37,200 --> 00:43:39,640
Speaker 6: have expected things to shake out the way they have.

842
00:43:39,960 --> 00:43:42,600
Speaker 1: Like to me, the soft landing is kind of here.

843
00:43:42,640 --> 00:43:45,239
Speaker 4: You know, I think here's what I would say. I

844
00:43:45,239 --> 00:43:48,080
Speaker 4: gave a speech at NYU, And the reason I'm pointing

845
00:43:48,080 --> 00:43:49,520
Speaker 4: to it isn't to say look at me, I give

846
00:43:49,520 --> 00:43:52,799
Speaker 4: a speech is because it was about this. So ultimately

847
00:43:52,880 --> 00:43:55,320
Speaker 4: I will judge a soft landing, and I think history

848
00:43:55,360 --> 00:43:58,560
Speaker 4: will as well if we allow people the time to

849
00:43:58,640 --> 00:44:00,640
Speaker 4: catch up. So if you look at people below the

850
00:44:00,680 --> 00:44:04,480
Speaker 4: fiftieth percentile of the wage distribution, they're still behind. If

851
00:44:04,480 --> 00:44:08,040
Speaker 4: you measure the cumulative losses they had from inflation, they

852
00:44:08,080 --> 00:44:10,440
Speaker 4: still need another year or so of this kind of

853
00:44:10,480 --> 00:44:14,160
Speaker 4: growth of wages above inflation to get their earnings their

854
00:44:14,360 --> 00:44:15,000
Speaker 4: lives back.

855
00:44:15,080 --> 00:44:15,879
Speaker 5: So for some.

856
00:44:15,840 --> 00:44:18,640
Speaker 4: People, you feel fine. For other people are like, I

857
00:44:18,719 --> 00:44:22,560
Speaker 4: got in such a giant ditch that I'm only now

858
00:44:22,880 --> 00:44:25,200
Speaker 4: getting close to seeing out of that ditch, and then

859
00:44:25,239 --> 00:44:28,160
Speaker 4: they want to have some path restore it. So I

860
00:44:28,160 --> 00:44:31,919
Speaker 4: would say, so I actually redefine or defined for people

861
00:44:31,920 --> 00:44:34,400
Speaker 4: what I mean by a soft landing. It's a durable

862
00:44:34,440 --> 00:44:37,000
Speaker 4: expansion that allows that to occur. So I'm not at

863
00:44:37,000 --> 00:44:39,439
Speaker 4: all satisfied right now, but i just want to keep

864
00:44:39,440 --> 00:44:41,640
Speaker 4: going because you know, I grew up in the seventies.

865
00:44:42,000 --> 00:44:45,719
Speaker 4: My parents had this card table, and as everyone in

866
00:44:45,719 --> 00:44:48,720
Speaker 4: my community did, and they would on like one Sunday

867
00:44:48,719 --> 00:44:51,000
Speaker 4: out of the month, they would put bills they could

868
00:44:51,000 --> 00:44:53,480
Speaker 4: pay in one stack and bills they couldn't, And over

869
00:44:53,520 --> 00:44:55,800
Speaker 4: the inflation period, the bills they couldn't pay just grew.

870
00:44:56,080 --> 00:44:58,640
Speaker 4: Then Voker did the vulgar disinflation. They both lost their

871
00:44:58,719 --> 00:45:01,600
Speaker 4: jobs and now the whole family in disarray, and I

872
00:45:01,719 --> 00:45:04,479
Speaker 4: just remember that, and I think, you know, I didn't

873
00:45:04,520 --> 00:45:06,480
Speaker 4: go to work at the FED because of that, But

874
00:45:06,600 --> 00:45:08,839
Speaker 4: I just remember that, and I think that's probably how

875
00:45:08,880 --> 00:45:11,480
Speaker 4: so many American families are feeling right now. They're just

876
00:45:11,600 --> 00:45:14,400
Speaker 4: getting kind of their feet under them. So that's what

877
00:45:14,440 --> 00:45:15,520
Speaker 4: a soft landing looks like.

878
00:45:15,680 --> 00:45:18,759
Speaker 2: All right, Mary Daily, San Francisco FED President, thank you

879
00:45:18,840 --> 00:45:21,200
Speaker 2: so much for coming on all thoughts. And I should

880
00:45:21,200 --> 00:45:23,640
Speaker 2: say Mary has her own podcast, so you should definitely

881
00:45:23,680 --> 00:45:24,439
Speaker 2: check that out too.

882
00:45:24,600 --> 00:45:27,000
Speaker 4: Can I say the name of course zip code economies.

883
00:45:27,040 --> 00:45:29,799
Speaker 4: Please please join us and you can come to any

884
00:45:29,840 --> 00:45:32,080
Speaker 4: state in my district and I will travel with you.

885
00:45:32,520 --> 00:45:35,160
Speaker 4: If Hawaii is your destination state, I'm going back this

886
00:45:35,280 --> 00:45:38,279
Speaker 4: year to see how the Hawaiian economy is doing, going

887
00:45:38,280 --> 00:45:40,200
Speaker 4: to Alaska, going to all the other states.

888
00:45:40,280 --> 00:45:43,520
Speaker 2: I want Alaska.

889
00:45:43,960 --> 00:45:46,440
Speaker 3: So even though it sounds nice on a cold New

890
00:45:46,520 --> 00:45:48,520
Speaker 3: York day right now, I would do it last.

891
00:45:48,600 --> 00:45:50,920
Speaker 4: The cool thing about any of these states, whether you're

892
00:45:50,960 --> 00:45:55,040
Speaker 4: city in Idaho, Utah, Alaska, Hawaii, is you're going to see.

893
00:45:55,400 --> 00:45:57,320
Speaker 4: This is the thing that I loved about the twelfth District.

894
00:45:57,400 --> 00:45:59,719
Speaker 4: Once I moved to the twelfth district to take the

895
00:46:00,000 --> 00:46:02,520
Speaker 4: economists job. Way back in the day, they would fly

896
00:46:02,640 --> 00:46:04,399
Speaker 4: me to there. I would fly to the main city

897
00:46:04,440 --> 00:46:06,919
Speaker 4: and drive all around. And here's what I learned that

898
00:46:07,440 --> 00:46:10,680
Speaker 4: ultimately the economies are vastly different, and yet they're all

899
00:46:10,680 --> 00:46:14,760
Speaker 4: the same. They all basically have people working together trying

900
00:46:14,760 --> 00:46:17,399
Speaker 4: to you know, build their lives, build their careers, make

901
00:46:17,440 --> 00:46:19,919
Speaker 4: a business. And that's a cool thing when you see

902
00:46:19,960 --> 00:46:21,919
Speaker 4: the vast difference and then you say, it all comes

903
00:46:21,920 --> 00:46:22,759
Speaker 4: down to the same thing.

904
00:46:23,080 --> 00:46:26,120
Speaker 2: All right, Thank you so much. That was fantastic, Thank

905
00:46:26,160 --> 00:46:26,560
Speaker 2: you so much.

906
00:46:26,600 --> 00:46:39,600
Speaker 5: Thank you, Joe.

907
00:46:39,600 --> 00:46:41,040
Speaker 2: That was a really fun conversation.

908
00:46:41,800 --> 00:46:44,440
Speaker 3: I think if I were going to be any FED president,

909
00:46:44,960 --> 00:46:46,759
Speaker 3: have to be the Hawaii list.

910
00:46:47,000 --> 00:46:50,480
Speaker 2: Listen to Joe on this podcast lobbying for lower mortgage

911
00:46:50,560 --> 00:46:53,160
Speaker 2: rates and for the twelfth FED district.

912
00:46:52,840 --> 00:46:54,719
Speaker 3: Well, and lobbying for us to take a trip to

913
00:46:54,840 --> 00:46:57,680
Speaker 3: last And I'm on board with that one. Would you

914
00:46:57,680 --> 00:46:59,240
Speaker 3: say the Northern Mariana Island.

915
00:46:59,440 --> 00:46:59,760
Speaker 4: Yeah.

916
00:47:00,040 --> 00:47:02,120
Speaker 2: And the only reason I know that, by the way,

917
00:47:02,239 --> 00:47:06,320
Speaker 2: is because it was the tiebreaker around a recent quiz

918
00:47:06,360 --> 00:47:10,120
Speaker 2: that we held in Los Angeles for Bloomberg clients.

919
00:47:10,360 --> 00:47:12,719
Speaker 3: Yeah, we didn't get to do it because there was

920
00:47:12,800 --> 00:47:14,920
Speaker 3: no tie. But yes, we were going to ask the

921
00:47:15,000 --> 00:47:17,839
Speaker 3: clients to name all of the states and regions, all.

922
00:47:17,800 --> 00:47:20,879
Speaker 2: Nine states and three territories. I wouldn't have been able

923
00:47:20,920 --> 00:47:23,000
Speaker 2: to do it Americana Islands, no way.

924
00:47:23,400 --> 00:47:27,560
Speaker 3: Yeah, I thought that was a fantastic conversation. First of all,

925
00:47:27,560 --> 00:47:29,879
Speaker 3: it's exciting we did get that nice beat on a

926
00:47:29,920 --> 00:47:33,080
Speaker 3: core PCE in the middle of the episode. It still

927
00:47:33,080 --> 00:47:36,360
Speaker 3: feels like a very tricky moment for sure for the FED,

928
00:47:36,600 --> 00:47:40,480
Speaker 3: even before the effects of any Trump policies come into effect,

929
00:47:40,520 --> 00:47:42,960
Speaker 3: regardless of what they are. The fact that the inflation

930
00:47:43,080 --> 00:47:45,520
Speaker 3: outlooked for twenty twenty five it's still going to be

931
00:47:45,920 --> 00:47:49,759
Speaker 3: a while apparently before they're sort of durably back. The

932
00:47:49,800 --> 00:47:52,560
Speaker 3: fact that we have seen this sort of big increase

933
00:47:52,719 --> 00:47:57,280
Speaker 3: in the ostensible neutral rate if it exists. Tricky times

934
00:47:57,280 --> 00:47:57,759
Speaker 3: for the FED.

935
00:47:57,960 --> 00:48:00,480
Speaker 2: Yeah, And I think there is that tension between you know,

936
00:48:00,560 --> 00:48:03,520
Speaker 2: wanting to see how everything shakes out and so trying

937
00:48:03,560 --> 00:48:06,560
Speaker 2: to be ahead of the curve to some degree. But

938
00:48:06,640 --> 00:48:09,160
Speaker 2: it is interesting. It was interesting to hear her talk

939
00:48:09,160 --> 00:48:12,200
Speaker 2: about like how she wasn't one of those people. Yeah,

940
00:48:12,239 --> 00:48:16,279
Speaker 2: taking into account potential future policy, the.

941
00:48:16,280 --> 00:48:19,319
Speaker 3: Housing question is going to be really interesting. Yeah, right, Like, so,

942
00:48:19,640 --> 00:48:22,239
Speaker 3: what are the residual sources of inflation if it's no

943
00:48:22,320 --> 00:48:25,080
Speaker 3: longer the labor market. Of course, she defended the beverage curve.

944
00:48:25,200 --> 00:48:28,280
Speaker 3: It's an employee, it's back and balanced. But this idea

945
00:48:28,400 --> 00:48:31,400
Speaker 3: that and you mentioned it. You know that housing construction

946
00:48:32,080 --> 00:48:35,720
Speaker 3: has fallen. This is going to be a persistent source

947
00:48:36,080 --> 00:48:38,960
Speaker 3: of economic stress, whether it shows up in the formal

948
00:48:39,000 --> 00:48:42,239
Speaker 3: measures of inflation or how it doesn't. This remains a

949
00:48:42,480 --> 00:48:44,720
Speaker 3: major issue, the fact that there is so much investment,

950
00:48:44,880 --> 00:48:47,600
Speaker 3: or at least government spending happening around the world globally,

951
00:48:48,120 --> 00:48:53,440
Speaker 3: military spending, aging, demographics, many, many such complications going forward.

952
00:48:53,640 --> 00:48:57,200
Speaker 2: Complications definitely the word of the day. Let's see so again,

953
00:48:57,239 --> 00:49:00,799
Speaker 2: we're recording this on Friday, December twentieth. We'll see what

954
00:49:00,840 --> 00:49:03,319
Speaker 2: happens over the weekend with the government shutdown. But like,

955
00:49:03,440 --> 00:49:05,200
Speaker 2: it does seem like there are a lot of one

956
00:49:05,320 --> 00:49:07,920
Speaker 2: offs that the Central Bank is potentially going to have

957
00:49:07,960 --> 00:49:08,840
Speaker 2: to take into account.

958
00:49:08,880 --> 00:49:11,000
Speaker 3: Absolutely all right, shall we leave it there, Let's leave

959
00:49:11,000 --> 00:49:11,360
Speaker 3: it there.

960
00:49:11,520 --> 00:49:14,399
Speaker 2: This has been another episode of the Authoughts podcast. I'm

961
00:49:14,400 --> 00:49:17,440
Speaker 2: Tracy Alloway. You can follow me at Tracy Alloway.

962
00:49:17,160 --> 00:49:20,040
Speaker 3: And I'm Jill Wisenthal. You can follow me at the Stalwart.

963
00:49:20,320 --> 00:49:23,840
Speaker 3: Follow our guest Mary Daily, San Francisco Fed President. She

964
00:49:24,080 --> 00:49:27,279
Speaker 3: is at Mary Daily econ and you can check out

965
00:49:27,280 --> 00:49:32,080
Speaker 3: her podcast, zip Code Economies. Follow our producers Kerman Rodriguez

966
00:49:32,080 --> 00:49:35,040
Speaker 3: at Carman Erman, dash Ol Bennett at Dashbock and kel

967
00:49:35,120 --> 00:49:38,960
Speaker 3: Brooks at kel Brooks. Thank you to our producer Moses Ondam.

968
00:49:39,120 --> 00:49:41,239
Speaker 3: And for more odd Laws content, go to Bloomberg dot

969
00:49:41,239 --> 00:49:43,760
Speaker 3: com slash odd Lots, where you have transcripts, a blog

970
00:49:43,840 --> 00:49:46,040
Speaker 3: and a newsletter and you can chat about all of

971
00:49:46,040 --> 00:49:48,319
Speaker 3: these topics, oh, including the fact and I meant to

972
00:49:48,320 --> 00:49:50,799
Speaker 3: say it, including the fact that voting doesn't matter at

973
00:49:50,800 --> 00:49:53,120
Speaker 3: the FED, which I thought was really interesting. Could talk

974
00:49:53,120 --> 00:49:55,960
Speaker 3: about that in the discord discord dot gg.

975
00:49:55,840 --> 00:49:58,440
Speaker 2: Slash odlines And if you enjoy all thoughts, if you

976
00:49:58,640 --> 00:50:00,400
Speaker 2: like it when we have FED President and so on

977
00:50:00,480 --> 00:50:02,840
Speaker 2: the show, then please leave us a positive review on

978
00:50:02,920 --> 00:50:06,200
Speaker 2: your favorite podcast platform. And remember, if you are a

979
00:50:06,239 --> 00:50:09,320
Speaker 2: Bloomberg subscriber, you can listen to all of our episodes

980
00:50:09,440 --> 00:50:11,960
Speaker 2: absolutely ad free. All you need to do is find

981
00:50:12,000 --> 00:50:15,680
Speaker 2: the Bloomberg channel on Apple Podcasts and follow the instructions there.

982
00:50:16,120 --> 00:50:16,920
Speaker 2: Thanks for listening.